Commissioner of Income Tax vs Ganeshi Lal Ram Krishna

R.K. Agrawal, J.

The Income Tax Appellate Tribunal, Allahabad, has referred the following questions of law u/s 256(l) of the Income Tax Act, 1961 (hereinafter referred to as the Act) for opinion to this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal were justified in cancelling the order u/s 263 of the Income Tax Act when the order of the Income Tax Officer was erroneous and prejudicial to the interests of the revenue on account of his failure to initiate penalty proceedings u/s 271B which attracted in the assessee''s case due to contravention of the provisions of section 44AB

The Reference relates to the assessment year 1987-88.

Briefly stated the facts giving rise to the present reference are as follows:

The respondent is a firm engaged in the execution of the civil contract work. It was required to obtain audit report in terms of section 44AB of the Act by a particular date. The respondent did obtain the report and the same was enclosed with the return for the assessment year in question.

The assessment was completed by the Income Tax Officer but he failed to initiate the penalty proceedings as envisaged u/s 271B of the Act for the respondent''s failure to obtain audit report within the specified period. The assessment records and other records were called for and examined by the Commissioner of Income Tax and he being prima facie of the view that the order failing to initiate penalty proceedings is erroneous and prejudicial to the interest of the revenue, accordingly issued notice u/s 263 of the Act and after giving an opportunity of hearing had remanded the matter to the assessing authority with the direction that feasibility in initiation of proceedings u/s 271B of the Act has to be examined in accordance with law.

Feeling aggrieved, the respondent preferred an appeal before the Tribunal. The Tribunal has set aside the, order passed by the Commissioner of Income Tax u/s 263 of the Act on the ground that failure to initiate penalty proceedings at the time of passing of the assessment order does not render the order erroneous or prejudicial to the interest of the revenue.

We have heard Sri A.N. Mahajan, learned standing counsel for the revenue and Sri Amitabh Agrawal holding brief of Sri P.K. Jain on behalf of the respondent-assessee. It is not in dispute that the return for the assessment year in question was to be filed by 31-7-1987 but it was filed on 28-8-1987 along with audited copies of balance sheet, profit and loss account, etc. The Auditor''s report is dated 3-8-1987. As the respondent''s turnover was to the tune of Rs. 57 lakhs and odd, it was obligatory on its part to get its accounts audited and to file the auditor''s report within the specified date in terms of section 44AB of the Act. The prescribed date in the present case was 31-7-1987, therefore, penal action u/s 271B of the Act was clearly attracted.

It has been pointed out by Sri A.N. Mahajan, learned counsel for the revenue that this court in CIT v. Ashoka Construction (IT Reference No. 151 of 1991, dated 28-1-2005) had considered the same controversy and has held that the failure to initiate the penalty proceedings u/s 271B does render the order of the assessing authority erroneous and prejudicial to the interest of the revenue and action u/s 263 of the Act can be taken.

Respectfully following the aforesaid decision we are of the considered opinion that the Tribunal was not justified in cancelling the order u/s 263 of the Act. We accordingly answer the question referred to us in negative, i.e., in favour of the revenue and against the assessee. However, there shall be no order as to costs.